Japan Stocks Decline on Shrinking European Manufacturing

Japanese shares fell, with the Nikkei 225 Stock Average falling by the most in two months, after European manufacturing shrank more than economists forecast, dimming the outlook for global economic growth.

Honda Motor Co. sank 2.9 percent after gains in the yen damped the earnings outlook for the carmaker, which gets almost 85 percent of its sales abroad. Daiwa Securities Group Inc., Japan’s second-biggest brokerage, slipped 1.8 percent after jumping by more than a third this year. Stadium operator Tokyo Dome Corp. jumped 5.1 percent after Mitsubishi UFJ Morgan Stanley Securities Co. raised its target price.

The Nikkei 225 lost 1.1 percent to 10,011.47 at the 3 p.m. close in Tokyo, after falling as low as 9,999.37 earlier today, the first time since March 13 that it fell below the 10,000 level. The gauge declined 1.2 percent this week, its first fall in seven weeks. The broader Topix Index lost 1.1 percent to 852.53, with about 2.5 shares declining for each that rose. Trading volume was 28 percent below the 30-day average.

“Investors have been looking at the situation in the U.S. and Europe optimistically and have been buying shares, but that energy is exhausting itself,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees the equivalent of $68 billion. “If you look at the situation rationally, there’s a lot of risk still out there.”

European Manufacturing Contracts

Futures on the Standard & Poor’s 500 Index added 0.1 percent today. The gauge lost 0.7 percent in New York yesterday as a report showing manufacturing contracted in Europe added to pessimism about the global economy after an earlier report showed China factory activity also shrank.

A euro-area composite index based on a survey of purchasing managers dropped in February, showing unexpected contraction in the manufacturing and services industries, London-based Markit Economics said yesterday.

Exporters declined after the yen rose against all of its 16 major counterparts tracked by Bloomberg.

Honda fell 2.9 percent to 3,180 yen. Kyocera Corp., an electronic components maker that gets more than a third of its revenue from the U.S. and Europe, retreated 1.8 percent to 7,480 yen.

Yen Strengthens

The yen appreciated to as high as 108.49 against the euro today in Tokyo, compared with 110.44 at the close of stock trading yesterday. Japan’s currency strengthened to 82.33 against the dollar from 83.39. A stronger yen cuts the value of overseas income at Japanese companies when repatriated.

Brokerages, which gained the most this year among the Topix’s 33 industry groups, were the biggest decliners today on the gauge.

Daiwa Securities slipped 1.8 percent to 337 yen. Nomura Holdings Inc., Japan’s biggest brokerage, lost 3.8 percent to 376 yen after jumping by more than a half this year. The company fell 1.3 percent yesterday after being linked to an insider-trading case by a person familiar with the matter.

“Considering how much Japan has risen, it wouldn’t be a surprise if we saw some correction given the slowing in the yen’s declines and slowdowns in Europe and China,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $27.6 billion.

Bull Market

The Nikkei 225 has risen more than 20 percent since its low in November on signs of a U.S. economic recovery, progress on tackling Europe’s debt crisis and additional monetary easing by the Bank of Japan. The bull market has helped the benchmark equity index nearly recoup all of its losses since last year’s earthquake, tsunami and nuclear crises.

Among companies that gained, Tokyo Dome, which operates a baseball stadium and hotels, jumped 5.1 percent to 270 yen after Mitsubishi UFJ Morgan Stanley Securities raised its stock price estimate to 330 yen from 240 yen, saying profit was recovering quickly from effects of last year’s earthquake and related power-savings measures. The brokerage maintained its “outperform” rating, according to a report dated yesterday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE